UK set for slow recovery

Published by Rhian Nicholson on 22 March 2010. Last updated on 22 March 2010

The UK is in for a "slow and sluggish" economic recovery that will undershoot government growth predictions, according to economists.

The Confederation of British Industry (CBI) predicts fragile growth of 1% in 2010, starting at 0.3% and 0.4% in the first two quarters of the year before rising to 0.5% in the second half.

The end of stimulus measures - including the VAT reduction and the car scrappage scheme - will weigh on the pace of recovery, it says. Growth is then forecast to rise to 2.5% in 2011.

Meanwhile, economists at the Ernst & Young ITEM Club have warned that government growth forecasts at 1.25% and 3.5% next year are too bullish with consumer spending and business investment still remaining very weak.

Richard Lambert, CBI director-general, says: "The economic outlook is improving, but the lack of a clear driver for growth will make for a bumpy ride in the months ahead.

"To convince international investors that the spiralling budget deficit will not derail the economy, the government must set out a credible plan to balance the books by 2015/16, two years earlier than currently planned."

The Ernst & Young ITEM Club said Darling needs to find another £10 billion through a "credible detailed and more aggressive plan".

However, the record budget deficit is likely to be less than the £178 billion predicted in the pre-Budget after better-than-expected public finance figures amid falling unemployment and a boost from the bankers’ bonus supertax.

Government borrowing is now expected to undershoot forecasts by between £5 billion and 10 billion.

Over the weekend, the chancellor Alistair Darling reiterated comments that there will be no giveaways in Wednesday’s "sensible and workmanlike" Budget.

He appeared to rule out the prospect of a VAT rise to 20%, claiming that the planned increases in national insurance contributions are a "better way" of reducing the deficit.

He also ruled out any further rises to the top rate of tax.

However, one plan to emerge from the Treasury is the launch of a £2 billion state-backed "green investment bank" which will be half funded by taxpayers and half funded by the private sector for environmental projects.

These will include high-speed rail lines, offshore wind farms and nuclear power stations.